States negotiate $25 billion deal for homeowners

NEW YORK TIMES

February 8, 2012

More than 2 million Americans could benefit from at least $25 billion in relief from the nation's biggest banks as part of a broad government settlement to be announced as early as Thursday, according to state and federal authorities. It is the latest effort by the government to halt the housing market's downward slide.

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is put into effect because earlier efforts by Washington to help troubled borrowers aided far fewer than had been expected.

Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly 1 million expected to have their mortgage debt reduced by lenders. In addition, 300,000 homeowners are expected to be able to refinance their homes at lower rates, while another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000.

The final details of the pact were still being negotiated Wednesday night, including how many states would participate and when the formal announcement would be made in Washington. The two biggest holdouts, California and New York, now plan to sign on, according to the officials with knowledge of the matter who did not want to be identified.

The deal grew out of an investigation into mortgage servicing by all 50 state attorneys general that was introduced in the fall of 2010 amid an uproar over revelations that banks evicted people with false or incomplete documentation.

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The five banks in the settlement - Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial - have largely set aside reserves for the expected cost of the accord and investors are likely to cheer its announcement, analysts said.

Though many economists identify the moribund housing market as the greatest drag on the recovery, it is not clear how much the settlement will help.

"It may be good for individual homeowners," said Christopher Mayer, a housing expert at Columbia Business School, "but if you don't do something to help the foreclosure process, it's not going to help the housing market."

Mark Zandi, the chief economist for Moody's Analytics, said that while the settlement looked small compared to the scope of the problem, it was not necessary to erase all, or even most, of the nation's negative equity to turn the market around. About a third of houses on the market now are distressed, or have been through foreclosure - reducing that percentage by just a small amount could be enough to put a floor under housing prices, he said.

More than the dollar figures, the settlement had been held up amid concern by New York's attorney general, Eric Schneiderman, that it provided releases that gave too broad an amnesty to banks for past misdeeds, making future investigations much more difficult.

Schneiderman was able to win significant concessions from the banks in recent days.

In the agreement's expected final form, the amnesty is mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents, a practice known as robo-signing.